More people are carrying student loan debt into their 60s, but likely not for their own education. Often, the debt is from loans they took out to help a grandchild or other relative.
Consider a report released by TransUnion this week that looked at shifts in the debt consumers take on by age. Of the people 60 and older who had student loan debt, about 40 percent of the debt was for loans they had co-signed. Even some of the loans they had in their own names may have been to pay for a relative’s education, says Charlie Wise, vice president in TransUnion’s Innovative Solutions Group.
“It would be uncommon that someone who got a loan when they were 20 years old would still have that loan obligation 40 years later,” Wise says. (Some of those loans, of course, may have been taken out to pay for graduate or continuing education courses, he adds.)
Co-signing can be a way to help out a relative or friend who may be fully capable of paying back those loans after graduating and finding a job. But when issues come up — the person can’t find a job, or falls sick or doesn’t make enough to pay back his loans– some seniors may find themselves on the hook for thousands or tens of thousands of dollars just as they’re entering retirement.
Student loans are particularly sticky because it is rare for them to be dismissed in bankruptcy, like mortgages and most other consumer debt can. It is also rare for them to be discharged while a borrower is alive except after extended periods of repayment or during extreme cases of disability. At times, the obligations are so burdensome that Social Security benefits are garnished to cover payments.
So what are other ways that grandparents and other family members can help a relative pay for college that don’t require going into debt? Financial advisers and student loan experts offer these:
Give them a place to stay. Grandparents who are hesitant about co-signing a loan may be able to reduce the amount that students need to borrow by giving them a place to stay rent free, says Eleanor Blayney, a financial planner and consumer advocate for the CFP Board, a nonprofit that sets standards for financial planners. Some students may be open to the idea: Fifty-four percent of the families surveyed by Sallie Mae this year said they were saving on college costs by having the student live at home or with a relative. Even paying for some of their housing expenses upfront — if you can afford it– may be one way to help them afford college without creating a long-term liability, she says.
Pay the school directly. It may be better for a grandparent or relative to give students cash than to take out a loan. Making a one-time payment to cover tuition — as a gift or in the form of a temporary loan — would be one way to help the child without creating additional debt that could haunt a person in retirement. But do this only if it won’t interfere with savings goals, says Keith Bernhardt, vice president of college planning at Fidelity Investments. “The grandparent has to be smart about the money they’re using for this,” he says. “They can’t sacrifice their own retirement or well-being.”
It might be best, if possible, to hold off on such payments until the student’s senior year, Bernhardt says. That’s because payments made to the school by a grandparent or other relative may be factored in as income to the student, which could affect how much the student receives in need-based financial aid, he says.
Help them save. Grandparents can also help a student save for college by opening a 529 college savings plan, where money can be invested and grow tax-free, Bernhardt says. It’s best to open these accounts when a child is young so that the money can be invested and grow over time, he says. But even opening an account for a current college student can help them raise funds to reduce how much they need to borrow. Students can ask other friends and relatives to contribute, and they can use the money to cover expenses that arise, Bernhardt says. (Fidelity introduced a feature this year where families can use social media to ask friends to contribute to a 529 account.)
Cover books or another expense. College students spend an average of $1,200 a year on textbooks, according to the College Board. Giving students cash each semester to cover these costs and other expenses, such as food, clothing or transportation, can be another way to help students out without putting your retirement security at risk, Blayney says.
Offer guidance. If the gap between the money students need and the money they have to pay for college is too large to fill without borrowing, family members may want to talk to their younger relatives about alternatives. Students may be able to lower costs by starting at a community college before transferring to a more expensive school, Bernhardt says.